October 26, 2018
Cross Border: UK v. US Purchase Agreement Terms
Here’s an interesting blog from Cooley’s Michal Berkner about some of the differences between UK & US purchase agreement terms for private company M&A. The blog highlights different approaches to reps & warranties, indemnification, post-closing adjustments, bring-down conditions and post-closing covenants. This excerpt addresses our old pal “sandbagging”:
Acquisition agreements governed by Delaware law sometimes contain provisions expressly acknowledging that a party’s right to recover for breaches of representations and warranties of the other party is not affected by any knowledge of such breach by such party, whether obtained prior to signing or between signing and closing. This heavily negotiated provision is known as a pro-sandbagging clause.
English law governed acquisition agreements often contain provisions that provide that a party does not have a right to recover for a breach of warranty of the other party to the extent the non-breaching party had knowledge of such breach prior to closing. This is known as an anti-sandbagging clause. English case law also suggests that a party generally does not have a right to recover for a breach of warranty of the other party to the extent the non-breaching party had knowledge of such breach prior to closing.
The buyer in such a case is deemed not to have relied upon the accuracy of such warranty, or to have no or de minimis damages, as such buyer is presumed to have valued the shares or assets on the basis of its knowledge that the warranty was untrue. Anti-sandbagging clauses typically limit the group of people who are deemed not to have knowledge of breach to the key deal team of the buyer, excluding attributing to them knowledge of outside advisers.
While dealmakers should have a working knowledge of the differences between the two jurisdictions, the blog acknowledges that the question of which jurisdiction’s law will govern often depends more on practical factors, such as the desire for a home jurisdiction for dispute resolution, the location of the business or the jurisdiction in which it’s organized, and tax considerations.
– John Jenkins